Motor tax on private cars and goods vehicles will increase by 6 per cent over the next two years to fund what the Minister for the Environment has called a "new deal" for local government.
The tax will be increased in phases, with half the increase applied on the passage of the necessary legislation and the remainder on January 1st, Mr Dempsey told a press conference in Athlone, Co Westmeath, yesterday.
Mr Dempsey, who said motor tax would be reduced on buses, taxis and hackney cars, said that for the first time, motor tax would be set aside for its original purpose, the upkeep of non-national roads.
The new funding system, he said, would address the anomaly of previous years where the proceeds of motor tax have been siphoned off for purposes other than roads.
"A clear link is now created between motor tax and spending on the upkeep of the road network. All State expenditure on non-national roads will be fully financed from motor tax," he said.
Mr Dempsey said the increase would amount to about £10 for motorists and would be the first increase in motor tax since 1992. He said the average size of Irish cars was 1,300 cc.
The increased spending on non-national roads, he added, would be of great benefit to motorists who would for the first time be able to see where their motor tax was being spent.
Studies were under way to determine the basis on which each county would get back its motor taxation. There would be no question of different counties having lower or higher rates of car tax than their neighbours.
This, he said, would be unacceptable and models were being studied to determine the best way to distribute motor tax, which would continue to be paid into a central fund.
The new funding system would be a major boost for local government services and an investment in local democracy. Funding was the lifeblood of local government.
The Government was making a commitment of £270 million to the new independent local government fund with effect from January 1st next and the fund would amount to about £590 million next year.
It would be financed from two sources, £270 million next year from the Government, which would be increased annually to take account of inflation, and charges in the functions of local councils and the motor taxation proceeds.
The fund would give local government an extra £125 million for discretionary day-to-day spending and would be legislated for and guaranteed to increase in further years.
The legislation, he said, would ensure that in future, central government would not be able to erode local funds by imposing extra obligations without providing the extra resources.
This had happened constantly in the past and he instanced the introduction of the Abattoirs Act as a case where central government imposed without taking into account local government funding.
Mr Dempsey said the new fund would benefit the entire community because of the availability of a better infrastructure and through the added scope of local government.
It would enable him to introduce a cap on increases in commercial rates in line with the Government's Action Programme for the Millennium.
Value for money, he said, would be at the heart of the new funding system and the public would see their money spent in the best possible way, bringing services to them.
The Department would not be handing out funds "willy nilly" and would be demanding value for the money which local authorities were now guaranteed.